Which of the following statements pertaining to instalment notes with blended principal and interest payments is correct?
A) The portion of each instalment applied to the interest and principal will remain constant.
B) The portion of the instalment applied to the principal will increase, while the portion applied to the interest will decrease over time.
C) The portion of the instalment applied to the principal will decrease, while the portion applied to the interest will increase over time.
D) The portion of the instalment applied to the interest will depend on prevailing market interest rates, with the difference being applied to the principal.

Question

Quizplus · Accepted Answer

In instalment notes with blended principal and interest payments, the total payment amount remains the same for each period, but the portion of each payment that goes towards the principal increases over time, while the portion that goes towards interest decreases. This is because as the principal balance decreases, there is less principal to charge interest on, thus more of the payment goes towards reducing the principal balance.

Which of the Following Statements Pertaining to Instalment Notes with Blended